If a job loss, medical bills or unexpected expenses have got your scrambling to pay your bills, you may have wondered whether it’s a good idea to liquidate your 401(k) account in order to pay them off. Before you take that step, which can subject you to substantial taxes and fees and throw your retirement plans into disarray, you should know that 401(k) accounts are exempt from collections if you file personal bankruptcy.
According to a recent study by NerdWallet Health, the leading cause of consumer bankruptcy filings in the U.S. is not credit card debt or mortgages, but rather health care bills. In fact, an estimated two million people in the U.S. will file for bankruptcy this year due to unpaid medical bills.
Did you know that you can be prohibited from filing for bankruptcy if you're found to have committed defalcation? It's true -- although the term had never actually been defined until now. On Monday, the U.S. Supreme Court took up the issue and defined the term in a unanimous ruling.
American Airlines' parent company AMR Corporation filed for Chapter 11 bankruptcy in late 2011 in the hopes of reorganizing its debts, ditching some obligations, and putting itself in a strong position for future profitability. Last year, US Airways Group, Inc., indicated it was interested in merging with American, which would have to be approved by the bankruptcy court.
A Chapter 7, 11 or 13 Debtor may avoid a judicial lien recorded against their real property that impairs the exemption on the property. There is no statute of limitations on filing a motion to avoid this judicial lien. Thus in at least one case the lien was removed after the bankruptcy case had already closed.
The following are the main advantages to filing a Bankruptcy:
For most individuals there are two different types of Bankruptcy filing -- A Chapter 7 liquidation and a Chapter 13 repayment plan. Both serve the same purpose of providing relief from your debts. But each has advantages and requirements that will determine which is the best filing for any individual debtor or whether the individual is even qualified to file that particular chapter.